Booming Exports

While production posted a modest rise in June, Germany's key exports rebounded to report a bigger-than-forecast 4.2 percent increase, despite the growing economic uncertainty sparked by surging inflation and the strong euro.

But a series of figures have painted a less encouraging picture of the prospects for the German economy with factory orders falling, the decline in unemployment slowing and business confidence in the country at a three-year low.

Once seen by many economists as helping Germany to make its way through the current global economic upheaval, private consumption in the country has taken a hit as energy prices have pushed inflation to record levels and the economic gloom has set in.

German consumer confidence has slipped to a five-year low, a key survey released last month showed, and retail sales in the nation fell sharply in June.

Europe on the brink of recession

This isn’t just limited to Germany, says Matthias Rubisch, economist with Commerzbank AG. The economy in other western European nations is rapidly losing momentum as well. Practically all the large western European countries are already at, or are close to, the brink of recession.

"Germany's high dependence on exports means that it cannot escape this development," he added.

Indeed, the latest batch of figures also comes at a time of growing concern about the outlook for Germany's growth rate as the world economy loses momentum on the back of the fall-out from the global financial market crisis and high energy costs.

Data to be released next week is expected to show German economic growth contracting during the second-quarter, after the nation's economy chalked up the fastest growth rate in 12 years during the first three months of 2008.

Quoting a German government official, London's Financial Times reported Wednesday that the nation's second-quarter growth rate would be "in the magnitude of minus one percent."

This follows a 1.5 percent increase in the first quarter after the German economy bounded into 2008 as it emerged from a two- year upswing.

Exports increasing

The surprise increase in Germany's seasonally adjusted exports in June came after a sharp 3.4 percent fall in May as strong demand from the world's leading emerging economies helped to boost Europe's biggest economy's key export machine.

Economists had predicted that the data, which was released by Germany's statistics office, would show exports posting a more modest gain of about 1.8 percent.

The June rise resulted in Germany's trade surplus widening to a record 19.7 billion euros. Export posted an annual 7.9 percent rise in June.

Orders to countries outside the European Union rose by an annual 12 percent with demand from nations in Asia, the Middle East and Eastern Europe helping to offset slowdown taking shape in the US and other parts of Europe, such as Britain and Spain.

German exports to its partners in the 15-member eurozone rose by an annual 4.7 percent in June and by 5.9 percent to the 27 members of the European Union. However, Thursday's data also showed the country's imports slipped by a surprise 0.1 percent month on month in June.

What’s more, the 0.2 percent price-and-seasonally adjusted rise in June after production was less than the 0.8 percent forecast by analysts with factory orders dropping by 2.9 percent.